Put not your trust in princes or central bankers (Psalm 146)

This may not be an exact quote from the King James Bible but it could well become increasingly appropriate advice for those investors who have come to believe, whether out of cynicism or naivety, that the various central banks both can and will ‘see them right’.  The People’s Bank of China still appears the most obliging as it is under political orders to ease monetary policy and provide bail-outs wherever needed. In the US,  while the FOMC does seem to have abandoned altogether renewing the notorious Greenspan and Bernanke ‘puts’ for investors it remains collectively ambiguous as to when the first interest rate hikes will start. The Bank of England has been much more restrained in deed but in word has indulged in occasional kite-flying about raising Base Rates and, most recently, in cutting them. In contrast, the ECB and Bank of Japan are still ‘gung ho’ on QE, ZIRP/NIRP and competitive currency devaluation.

Last week collywobbles in most equity markets further confirmed that some investors are losing confidence both in the global economy and the ability of central banks to do much about it. In fact, US markets have been flashing hot and cold for much of the last six months in response to FOMC ambiguity while those in Europe and Japan have been either awaiting or responding to ECB and BoJ QE programmes. Since Mr Draghi fired his starting gun investment flows have been complex with some US investors eager to exploit ECB as well as BoJ largesse while some European and Japanese investors have taken the opportunity to pile into the US. Mr Draghi, presumably deliberately, has set off a feeding frenzy for European sovereign bonds and shorting the euro in favour of the dollar.

Around the world, commentators with varying degrees of shrillness are ramping up talk of asset prices bubbles and surely there will soon be more frequent alarms over Ponzi schemes and Minsky moments. Market movements and economic fundamentals rarely coincide but it is worth saying that the latter are definitely not encouraging. Whatever monetary policy has been credited with in the past it appears now not to be doing much for global demand. Accordingly, putting trust in central banks is asking too much of them. Moreover, at the risk of ending with a banality, it should be noted that the ‘sell in May’ season is already upon us.


There are two contenders for Weekly Irrational Movements in Prices

Thirty-year German bund yields: 0.48%, down 17 pips on week and 90 pips in 2015 so far. OK, so you might end up being repaid in DMarks but less than half a per cent return for 30 years?

Shanghai Composite: up 6.7% last week, 32.5% in 2015 and 111% in 12 months. Even the Chinese authorities are rattled!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s